WASHINGTON - Facing a weak economy as he eyes a 2004 re-election bid, President Bush shook up his economic team yesterday, pushing out Treasury Secretary Paul H. O'Neill, who failed to inspire confidence in the financial markets or in the administration's ability to sustain a recovery.
O'Neill, the first Bush Cabinet member to leave office, resigned under pressure, along with the president's top economic adviser, Lawrence B. Lindsey.
The twin departures were an acknowledgement that the administration has not made a clear and compelling case for its economic strategy. They also reflected Bush's effort to show he is keenly aware that the economic slowdown has hurt Americans and that he is determined to achieve a robust recovery.
The news coincided with a report that the nation's jobless rate surged to 6 percent last month - its highest point in nearly nine years.
Bush did not immediately name a successor for either man. At a time of uncertainty, this means that three top economic posts are unfilled. The third vacancy is at the Securities and Exchange Commission, whose chairman, Harvey L. Pitt, resigned under fire last month.
White House officials said Bush would soon appoint replacements for the three officials. He has settled on a nominee to replace O'Neill, though no offer has been made, several officials told the Associated Press. The person is known on Wall Street and has experience with the economy and government, the officials said.
Lindsey's replacement is likely to be Stephen Friedman, a former chairman of Goldman Sachs, the wire service reported.
Among other names mentioned are Joseph J. Grano Jr., head of UBS Paine Webber in New York; Charles Schwab, the investment manager; and Wayne Angell, a former member of the Federal Reserve.
A Republican congressional aide said Phil Gramm, the departing senator from Texas, and Jack F. Kemp, a former congressman and Cabinet member, had also been discussed as potential successors to O'Neill.
The new members of Bush's team will probably play crucial roles in policy-making, shaping legislation to spur economic growth and proposals to reform Medicare and Social Security.
Speculation had abounded for months that Bush might replace O'Neill and Lindsey, neither of whom has served as an articulate or forceful spokesman for the administration's policies.
For Bush, a weak economy poses a potential threat to his re-election in two years. His father lost his presidential re-election bid in 1992 after he was viewed as paying too little heed to the economic hardships of ordinary Americans.
Yesterday, Bush called O'Neill and Lindsey "highly talented and dedicated" and said they "worked with me to craft and implement an economic agenda that helped lead the nation out of recession and back into a period of growth."
O'Neill, unpredictable and blunt-spoken, often embarrassed the White House with overly rosy predictions for the economy or by resisting White House policies, notably some of Bush's favored tax cuts. Nor was the 67-year-old O'Neill popular on Wall Street, where it is crucial for a treasury secretary to carry weight.
Democrats, unable to make an effective case in the midterm elections that Bush's economic policies were flawed, argued that the White House was acknowledging failure. They asserted that under Bush, Americans have lost jobs, seen investments shrink and lost confidence in corporate accounting.
"Firing its economic team is an overdue admission by the Bush administration that its economic policies have failed," said Sen. Tom Daschle, the South Dakota Democrat who will become minority leader when Republicans take over the Senate next month. "However, the fundamental problem is that this administration has no comprehensive plan to get the economy back on track."
Mississippi's Trent Lott, the incoming Senate majority leader, called the resignations "an opportunity for the administration to think about the best people to bring in as they try to develop an economic growth package."
How best to stimulate the economy will be a central debate in the coming legislative session and in the run-up to the 2004 presidential election.
Bush and his GOP allies are working on a tax-cut package that is likely to be announced in coming weeks. Democrats are trying to draft an alternative plan, which they say will propose tax cuts geared more for low- and middle-income Americans and will also focus on shoring up jobless benefits.
Andrew Kohut, an independent pollster who heads the Pew Research Center, noted that voters express far less trust in Bush's handling of the economy than in his foreign policy. The resignations, Kohut said, "seem to be a message from them that we're not standing pat."
Bush's supporters and skeptics say the White House should seek a new treasury secretary in the mold of Robert E. Rubin, who held the job under President Bill Clinton. Rubin was highly respected, reassuring to investors, and a commanding and persuasive public voice.
"We have issues coming up like tax reform, Social Security reform, health care reform, which all affect the economy, and we need a big-time spokesman, a quarterback," said a veteran Republican lobbyist. "The White House wants somebody who can be more open and jaw-boned. Paul is a quiet man who does a lot of his work internally."
O'Neill, who stepped down as chairman of the Aluminum Company of America to join the administration, came under criticism soon after he took office in January of last year, when he said he would keep nearly $100 million of Alcoa stock. He changed his mind after critics pointed to a possible conflict of interest in his new job.
Early on, White House aides said Bush welcomed O'Neill's plain-spoken style. But increasingly, O'Neill would utter something publicly that embarrassed or irritated the White House.
On several occasions, O'Neill questioned the wisdom of broad tax cuts, suggesting that there were more effective ways to jump-start the economy that would not risk bigger deficits.
After the Sept. 11 attacks stung the economy and caused the stock market to slide, O'Neill acted curiously sanguine, saying that the markets would recover within about a year and that the economy was not in recession. He was wrong on both counts.
Earlier this year O'Neill unsettled Brazilian financial markets when he said that "throwing the U.S. taxpayers' money" at Brazil did not "seem brilliant" to him. He amended his remarks after Bush's national security adviser, Condoleezza Rice, received an angry phone call from President Fernando Henrique Cardoso.
Initially, Bush tapped O'Neill at the urging of Vice President Dick Cheney, who had met O'Neill in the early 1970s, when Cheney was President Gerald R. Ford's chief of staff and O'Neill was deputy director of the White House budget office.
O'Neill still has allies - though some of them conceded the need for a change so that the message that Bush is dealing aggressively with the economy's woes can be trumpeted.
Sen. Charles E. Grassley of Iowa, the Republican who will become chairman of the Finance Committee, said O'Neill's brazenness has been a breath of fresh air.
Lindsey, 48, a former Harvard professor and Federal Reserve governor, was popular among White House officials early on. Bush relied often on his economic advice. In recent months, though, Lindsey has been criticized for appearing too gloomy in public. He also seemed to step out of line when he expressed concern over the cost of a war with Iraq - a consuming priority in Bush's foreign policy.
Bush's other top economic adviser, Glenn Hubbard, chairman of the Council of Economic Advisers, has taken a larger role in advising Bush and is pushing a tax cut on corporate dividends as the surest way to quickly spur economic growth. Congressional sources expect the White House to unveil a plan that includes such a tax cut in the near future.
Some Democrats said they hoped to be able to work with fresh faces to reach consensus on an economic recovery plan.
"The Bush economic plan has not worked - but I don't think [O'Neill and Lindsey] are to blame," said Rep. Benjamin L. Cardin, a Baltimore Democrat. "The primary architect of the Bush economic plan is President Bush."